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5.1
Reputation Defined
Corporate reputation is an important asset or liability bestowed upon a corporation by its stakeholders (Love and Kraatz, 2009). Walker (2010) defined corporate reputation by making distinctions between organizational identity, organizational image and corporate reputation. Organizational identity is the most central, enduring, and distinctive basic character of an organization. Organizational image is outsider judgment based on perception of corporate communication. Corporate reputation represents what is actually known by both internal and external stakeholders. For example, stakeholders perceive a corporation to be corrupt or involved in other forms of white-collar crime.
Corporate reputation is a soft concept. It is the overall estimation and judgment of an organization that is held by its internal and external stakeholders based on the corporation’s past actions and expected future actions and behavior. There may be differences in reputation among stakeholders according to their experiences and preferences in dealing with the organization as well as their information obtained from others. Reputation is judgment about vices and virtues, strengths and weaknesses, that stakeholders accumulate, process and reprocess about someone. The circulation of reputational information seems essential to all social interaction, whether conducting a business, achieving recognition or identifying reliable others (Bovenkerk et al., 2003).
Corporate reputation is the collective judgment of a corporation, it is a set of characteristics that are attributed to a firm by stakeholders, and it is visible in the particular type of feedback, received by the organization from its stakeholders, concerning the credibility of the organization’s identity claims. However, reactions by stakeholders in relation to a firm are not part of the reputation (Einwiller et al., 2010).
Corporate reputation is a perceptual representation of a company’s past actions and future prospects that describe the firm’s overall appeal to all its key constituents when compared to other leading rivals. Reputation is a combination of reality such as economic and social performance and perception such as performance perceived by key stakeholders (Hemphill, 2006).
Corporate reputation is a global and general, temporally stable, evaluative judgment about a corporation that is shared by multiple stakeholders. It is the net reaction of customers, investors, employees, and other stakeholders to the company. It is a collective of individual impressions (Highhouse et al., 2009). Similarly, Friedman (2009) defines corporate reputation as a relatively stable, long-term intangible corporate asset that is important for organizational competitiveness. It is a perceptual representation of a company’s past actions and future prospects that describe the company’s overall appeal to all its key constituents when compared to its rivals.
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Three key attributes are emphasized in the definition of reputation: (1) reputation is based on perceptions; (2) it is the aggregate perception of all stakeholders; and (3) it is comparative. Furthermore, (4) reputation can be positive or negative; and (5) it is stable and enduring (Walker, 2010).
Awareness of the link between corporate reputation and white-collar crime has risen substantially in the business world after the joint collapse of Enron and Arthur Andersen. As a consequence, companies have become more sensitive to the value of their reputation. Corporate audiences, including institutional and individual investors, customers and suppliers, public authorities and competitors, evaluate the reputation of firms when making choices and other decisions (Linthicum et al., 2010).
The two main sources of the corporate reputation are experience and information – a person’s or a group’s past dealings with the company and the extent and nature of their direct and indirect communication with the company. It is argued that a favorable reputation requires not only an effective communication effort on the part of the corporation. More importantly, it requires an admirable identity that can be molded through consistent performance, usually over many years and even decades.
5.2
Resource-Based Theory
According to the resource-based view of the firm, corporate reputation can be considered to be valuable strategic resource that contributes to or harms a corporation’s sustainable position (Keh and Xie, 2009). The central tenet in resource-based theory is that unique organizational resources of both tangible and intangible nature are the real source of competitive advantage. With resource-based theory, organizations are viewed as a collection of resources that are heterogeneously distributed within and across industries. Accordingly, what makes the performance of an organization distinctive is the unique blend of the resources it possesses.
Corporate reputation is an intangible resource that influences stakeholder behavior, including employees, management, customers and investors (Friedman, 2009). The resource-based view of the firm places specific emphasis on corporate intangibles that is difficult to imitate. Reputation is one corporate intangible thought to enhance customer satisfaction and loyalty, employee attraction and retention, firm equity, and investor awareness. It is also argued that reputation as a resource enhances bargaining power in trade channels, helps raise capital on the equity market, provides a second chance in the event of a crisis, provides access to the best professional service providers, facilitates new product introduction, and adds value such as trust to goods and services (Highhouse et al., 2009).
Corporate reputation as an intangible resource is both influenced by the extent of white-collar crime as well as influencing the extent of white-collar crime. Competitors that are involved in given value networks contribute to define how each enterprise in an industry can strive for profit. Dion (2009) argues that the capacity to convert corporate intangibles, such as corporate reputation, in a negotiable value could contribute to prevent corporate crime.
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From a resource-based perspective, reputation is a valuable and rare resource that can lead to a sustained advantage or a temporary or permanent collapse. A good reputation is difficult to imitate and highly causally ambiguous. Walker (2010) argues that the greater the ambiguity experienced by constituents, the greater the importance of reputation as a resource as it reduces uncertainty by signaling, for example, service quality.
Although reputation is an intangible resource, it is argued that a good reputation consistently increases or sustains corporate worth and provides sustained competitive advantage. A business can achieve it objectives more easily if it has a good and consistent reputation among its stakeholders, especially key stakeholders such as its largest customers, opinion leaders in the business community, suppliers and current and potential employees.
5.3
Determinants of Corporate Reputation
In addition to white-collar crime, there are a number of other determinants of corporate reputation. For example, Highhouse et al. (2009: 1481) applied an organizational impression management perspective on the formation of corporate reputation by asking how reputation judgments are formed:
What factors are considered? How can reputation judgments be influenced? These are questions that are appropriately addressed by behavioral science. Working from a view of reputation as a social construction – one that indicates the general, shared regard in which relevant constituents hold a company – we review literature that is relevant to the formation and foundation of corporate reputation.
Highhouse et al. (2009) applied a working definition of reputation as a collective of individual impression that necessitated a micro view of impression formation as a foundation for understanding corporate reputation. In their search for determinants of corporate reputation, the researchers distinguished between internal and external factors, where internal factors were separated into substantive and symbolic attributes. Substantive attributes that may harm reputation similar to white-collar crime are lack of social capital, lack of knowledge, lack of product development, and diversification with little substance. Symbolic attributes that may harm reputation similar to white-collar crime are failed advertising, misleading public relations and negative corporate social responsibility policy. External factors that may harm reputation similar to white-collar crime are negative word of mouth and negative media exposure.
In a different study, Friedman (2009) searched for determinants of corporate reputation within human resource management. He found that organizational value is lost when employee competencies and motivation deteriorate since this in turn negatively influence corporate reputation. He argues that effective implementation of the strategic partner, the change agent, the administrative expert and the employee champion human resources management roles can indirectly enhance corporate reputation.
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Love and Kraatz (2009) focused only on downsizing as determinant of corporate reputation. The aim of their study was to illuminate reputational change processes and identify the underlying theoretical mechanisms. They found that downsizing exerted a strong, negative effect on reputation, consistently with the character explanation.
Resource-base theory can be applied to understand the role of news media as an influence on corporate reputation. Corporate reputation is influenced by news media when stakeholders are dependent on news media to learn about reputation dimensions of the company. If stakeholders learn directly from experience and observation, then news media are less important. This is in line with media system dependency theory, which proposes an integral relationship among audiences, the news media and the larger social and economic system. Dependency is defined as a relationship in which the satisfaction of needs or the attainment of goals by one party is contingent upon the resources of another party (Einwiller et al., 2010).
5.4
Effects of Corporate Reputation
According to Friedman (2009), corporate reputation is an intangible resource that influences stakeholder behavior, including employees, management, customers and investors. According to Highhouse et al. (2009), reputation is thought to enhance customer satisfaction and loyalty, employee attraction and retention, firm equity, and investor awareness. It is also argued that reputation as a resource enhances possibilities in a number of other aspects. According to Dion (2009), reputation can even prevent white- collar crime.